Private Equity Accounting & Business Development

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Private equity funds under the US GAAP follow this framework laid out by the American Institute of Certified Public Accountants that includes an Audit and Accounting Guide. According to the guide, private equity bookkeeping should consist of:

• Cash flow statements
• Schedule of investments
• Statement of assets and liabilities
• Statement of operations
• Separate listings of financial highlights
• Notes on the financial statements

Valuation may be the heart of private equity accounting. For this reason, private equity financial advisers are able to help their clients choose the right accounting standard. The wrong choice may negatively impact the investment value.

Still, regardless of the accounting standard used, investments should be listed at fair value. However, the meaning of fair value changes depending on the accounting standard used. For example, in some situations, your private equity fund could discount the value of investments if you make the claim that there is a regulatory or contractual restriction that impacts the market price of the investment.

Generally, investments should be listed as the price the fund paid for them, subtracting any provisions or, at the price of the investment when it was first put on the market.

ProAccountants CPA offers private equity CFO business advisory to small and medium-size private equity funds. As private equity financial advisers, we aim to help you manage client relationships, coordinate quarterly investor reporting, review and prepare management fee calculations, and prepare quarterly management fee calculations.

Our team of experienced accountants is here to provide leadership and guidance. We are well-versed in the principles behind accounting for private equity funds.

Private equity funds are likely to be structured as limited partnership agreements. They generally have multiple classes of partners consisting of a founder partner class, general partner class, and a limited partner class. Expenses and funds should then be allocated across different partner classes. It may also be helpful to note that a limited partnership agreement sets the rules for the allocation of expenses and distributions.

As the tax laws evolve, equity fund structures may need to be adjusted to provide the best tax protection for all involved. You may have come to understand that private equity funds can create complicated investment and accounting structures. However, the previously mentioned information only scratches the surface of private equity accounting.

There are additional tax rules and regulations in place that vary based on the jurisdiction, county, or state. These elements may add another layer of complexity to the accounting process. Our private equity accountants here at Fusion CPA recommend partnering with an expert to assist with understanding the full scope of private equity accounting and placing controls to minimize tax risk.

Setting up a private equity fund or company is usually done by utilizing a limited partnership structure as doing so provides several benefits. As a limited partner in this type of business entity, you’ll receive asset protection. All assets in the limited partnership are protected if you get sued. Also, as a limited partner, you don’t have to worry about day-to-day operations. The general partner completes this activity, and you’re only liable for the investment you make in the company.

Understanding the method used by the government to tax private equity is essential if you want to ensure you’re meeting all expectations and guidelines required by the IRS. Setting up a private equity investment as a limited partnership provides a tax benefit as the partnership pays no taxes on income. Using this flow-through entity allows the limited partners to receive income via dividends or distributions. Another advantage is the carried interest provision. It allows the limited partnership to provide a share of the profits as compensation. It’s considered a return on investment and taxed at the capital gains rate, avoiding the income tax bracket’s higher rates.

The tax obligation for limited partnership is also modest. Losses pass through to the partners and can help offset gains that have been generated from other investments. Knowing how to account for this and ensure it meets the IRS guidelines may be more straightforward to handle when a professional tax accountant is involved in the tax planning and preparation process. Paying management fees using a de facto dividend can also be advantageous as it is classified as a nontaxable business expense.

Knowing more about how the government has decided to tax private equity should provide you with the information needed to see why utilizing a limited partnership can be beneficial.

At ProAccountants CPA, we have experienced CPAs who work with this type of business structure frequently. Tapping into their knowledge and experience may be what you need to handle your taxes correctly and efficiently. Contact us today if you have any questions. We’d be happy to assist you in building a strategy for your tax obligations.

Accounting software for private equity groups is no longer just for accounting. At ProAccountants CPA, neither are we.

You’re also aware that while your book of business becomes more profitable over time, it must continuously grow to ensure your company’s longevity. Trying to manage new and tenured client relationships while shuffling legal documentation is more than anyone can handle alone. Let’s also not forget managing cash flow and leveraging assets. Software for private equity firms like the ones listed below are now paving the way for entrepreneurial equity firms to better manage their company from the closings to compliance and ultimately, capital gain.

Jumping back and forth from platform to platform is inefficient. It also requires more time and man power when you’re operating from two or more different systems. Managing prospective clients, contacts, and accounting go hand in hand in the private equity industry. Software for private equity firms should go beyond the typical financial dashboard. You need a software that will provide complete transparency to every division of your business to ensure corporate cohesiveness. Accounting software for private equity have streamlined the management for your company from sales to back office.

A sales platform integration creates a sense of accountability and expectation across your sales team. Keep track of pre-planned meetings, document meeting notes and information, and create follow up reminders for specific needs throughout the closing process. 

With the red flag notifications for upcoming items that are due, your sales team can work with the operations team to make back office work more manageable. It also looks more professional to remember signatures up front! Easily monitor fundraising and set goals and deadlines and retain clients longer with future dated reminders to check in.

Let’s face it. Sales people are focused on closing deals – not filing paperwork. With the new software for private equity, though, integrating compliance with closing a deal has never been easier. With each step of the process, sales representatives are reminded of what needs to be completed to be in good legal standing – protecting the client and your company. These easy-to-use software companies have taken the guess work out of gathering documentation in a timely fashion and retention. Finally, sales and security work hand in hand to create a sound financial institution.

With a click of a button, the right software can generate a report on nearly anything you could imagine. No more guessing about the pipeline. Gone are the days of wondering how much revenue would be generated off projected closed business. With built in calculators and reporting, you will save time (and money) on crunching numbers. In addition, you will be minimizing your margin of error significantly.

Keep the whole company engaged by generating monthly reports that encourage each division. Track closed business, compliance exceptions and overall revenue. While you can limit who can see which reports, it is faster and easier to share company successes than ever before. Never before has there been a more suitable software for private equity.

When it comes to managing other people’s money, we, like you, understand the need for trust and transparency. By building working relationships with our clients, we can better understand their professional goals and help take the next steps in achieving them.